If the investor is a good co-founder and committed to the idea and has the network and chops to make something happen for $3000, might be a good idea for some people.
But... you want a co-founder who is committed, can point you to the right way to build the MVP so that you can actually acquire customers, has a network in and some knowledge of your vertical.
Otherwise, you build an MVP, give up 50% for... not necessarily very much. Now you have a weak co-founder with 50%, might make it hard to take the next step, sort out control issues, have enough equity to get more people interested and still be interesting for the founder.
And if you really believe in your idea, and are the kind of strong hacker and entrepreneur that will be successful, is $5,000 that big a hurdle for friends and family, credit cards etc.?
I think it is very interesting and creative offer. I am software developer who tried to build many different products. From my perspective money was never a problem. The problem was to find partner who knows how to promote and sell product. Or at least someone who want to learn it.
IMHO this person is worth its 50%. Or 33% if there are 3 founders (marketing, programmer and graphics designer). Even without any up front money. So this $5000 makes this offer even better.
For me this proposition would look better if instead of money it would contains some milestones. At each milestone we will define some metrics and based on this metrics we will decide if we move on or pivot/drop the idea. For example:
M1. Agree on problem we want to solve and the way we reach our customers. I would love to change the world not just make money. Can we agree on it? etc.
M2. Create and promote MVP. Example metrics: how many people clicked learn more button?
Good partner is more worth then invested money. But that's of course my point of view. I don't need money and can spend half my time building the product (The other half need to make living :-) )
But I believe for many people it could be great offer. And I wish you best luck. Would love to hear how it turns out.
For most hacker founders though -- $500k is a much better sum to raise than $5 million. Do you really want to have to hire marketing people, give up board seats, give up more of your company than you should, and significantly reduce the % probability of success?
For many founders, raising $5 million is like pouring gasoline all over yourself when you're on fire.
Syndicating a bunch of smart angels who have been there and want to help you may be harder to do, it's probably the right call for most startups.
You want to get friends, family or certain operators to spend time and help the company. Lot of individuals don't have $50k-100k to invest, but they could invest $5k-20k and that way have skin in the game.
As a founder/company, doesn't really matter to me if a person invests $5k vs $50k if they are just engaged and helpful. For example someone who really understand sales and can teach you, can be more valuable than a random angel investor who don't have any particular skills other making intros to their network.
However, you don't usually want to raise the whole round from $5k investors since it can be a lot of work, no-one has a bigger stake, you add a lot of names on the cap table and its going to be hassle each time you do additional financing.
Initial thoughts: not disruptive enough to justify the extremely low valuation. How are you different from a reputable angel investor, who also brings connections? $5000 lasts about a month in NYC or the Bay Area.
I like the ambition (of disrupting the funding process) but, in all honesty, to me this sounds like "I just need an idea guy" (as opposed to "I just need a programmer").
I can see this as being great for inexperienced founders looking at getting funding for their first stab at being an entrepreneur. However, any founders that are talented and have worked as an engineer at at least one moderately or highly successful company should be able to raise money on much better terms. Giving up 15% for $150k seems pretty steep, especially when the investor in question is spread so thin. Money and maybe occasional introductions are going to be pretty much the only forms of involvement that the investor could realistically invest in you.
Here's a counter-offer. If you have an idea and I like it, I'll take your $5000 and will build an MVP. You'll have to commit to spend at least $3000 more on marketing right after it. And I'll take 50% of the business.
I read the $3-4m as what they're hoping the idea might be worth, one day. I.e. wishful thinking, and irrelevant.
Likewise the $500k. Does that depend on a successful funding round? Because if it does, it's a long way from being a sure thing.
You're being low-balled on salary and on equity. This doesn't set a good precedent for your future relationship.
A competent, trustworthy founder team would do neither.
I'd either pass or suggest they pay the market rate for the same level of equity. If they can't afford the market rate - or can't afford it yet - that's Not Your Problem.
Of course there's the risk they have something really special. But I'd guess if it's really special, funding will be easier to find and there should be no need to make you take on a financial risk just to work there.
Don't forget the Joel Spolsky Company Operating system. He has a solid string of successes, and I don't think he'd operate like this.
$100K won't buy enough professional services to build, launch, and operate an MVP unless the app is very simple. If it's simple enough that anyone can drop $50K-100K on design services and have your business cloned, it's not a very defensible startup idea.
There are occasional exceptions, but typically the founding team must have the majority talent and skills required to launch the MVP.
I'd offer that $1M would qualify Non-technical as an accredited investor. I'm more interested in the person who can offer up, say $100k, give or take, to support the development and launch of a MVP.
Proposition HN: I will pay $10,000 for you to build your side-project/MVP
Premise 1:
Investors/Incubators over-estimate their ability to pick good ideas/startups.
Premise 2:
An MVP built by a lone, but talented techie is almost as likely to turn into something 'successful' as a startup on angellist that has: 4 founders, 9 advisors, 13 press releases, 600 followers, etc
Premise 3:
Most freelancers will not build and/or follow-through with their ideas, because they perceive their opportunity cost to be too high.
Premise 4:
HackerNews has a decent number of talented freelancers with good ideas.
Based on these premises, I present The Proposition [Version 1.0]:
I'll pay you $5000 to build the MVP of that idea you've been kicking around in your head for the last year. Once you're done (ideally within 2 months), you can go back to earning your full potential. At this point, I'll take over and spend an additional $5000 to acquire enough users/customers for us to evaluate the project's likelihood of success. We split the resulting company 50-50, as equal co-founders.
I think 5k is cheap. And lesson learned here is don't bring ppl on unless they bring a valuable skill set to the team. Because when people hear "startups" they don't see creating something good, they see a lottery ticket hoping to be on bandwagon of the next facebook IPO.
my co-founder is a very good performance marketer and makes a good six figure monthly income, and we are working on this new project that can be very big and is an amazing idea in my opinion.
I'm currently getting a 'salary' to manage some devs and designers and i hate it that everything is coming out of his pocket, and i'd much rather find investors so that we can scale and make it happen quickly.
I am trying to get the most done in a cheaper way possible because i came in, he already spent 5 figures on something that was completely thrown away since it was useless.
What would you guys recommend me? i even mentioned that i got friends who would easily invest 500k+ in 8-12% however his reply are 'no way this is my baby' and things of such.
right now he is trying to get a domain purchased for less than 10k, and i was like, dude if we got an investment we could have this domain already for 15k and we good. so domain, me not hiring more people, all this stuff it feels like we are limiting ourselves, or perhaps i should say fuck it and care less of his money. Is just that i know he wants to save money as well, and he is also a friend.
anyways, thanks in advance for any replies. hope all you guys are kicking ass this year as well ;)
Unlikely that you'll meet the founders - It's not worth it for a founder to meet someone for a $1k investment (the minimum allowed).
Seems more like an easy way for you to spread your risk over several start-ups with smaller investments in each, as opposed to putting a larger sum + time and effort in a single company.
This proposition will work IFF the OP has street cred. Why did you choose to go anonymous? Founders want a backer with street cred more than they want money. Most founders will gladly give 90% equity for a pittance if the investor is in the league of Ron Conway or a16z...
If the market rate for the founder is 300k then it's all the better for the founder. The problem is if the founder's burn rate is also close to 300k / year. Otherwise the founder making 300k per year can hopefully save up a decent amount of money quickly and perhaps bypass the need for angle funding.
But... you want a co-founder who is committed, can point you to the right way to build the MVP so that you can actually acquire customers, has a network in and some knowledge of your vertical.
Otherwise, you build an MVP, give up 50% for... not necessarily very much. Now you have a weak co-founder with 50%, might make it hard to take the next step, sort out control issues, have enough equity to get more people interested and still be interesting for the founder.
And if you really believe in your idea, and are the kind of strong hacker and entrepreneur that will be successful, is $5,000 that big a hurdle for friends and family, credit cards etc.?
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